Published on Jun 10, 2023

Daily Analysis For EUR/USD 28-05-2023

EUR/USD Analysis

Key Points

· EUR/USD continues to linger at its lowest levels in a span of two months, having experienced a decline over the past three consecutive days.

· The Euro pair is facing downward pressure as a result of Germany's downward adjustment to its Q1 GDP, which outweighs any optimistic discussions from the European Central Bank (ECB) regarding a more aggressive stance on monetary policy.

· Furthermore, concerns regarding a potential US default, coupled with robust economic data from the United States, have allowed bearish sentiment to persist for EUR/USD, firmly keeping control in the hands of the sellers. As we anticipate the release of crucial data from the United States in the middle of the week, the Euro pair remains vulnerable to further downside moves.

Today's Scenario: -

During the Asian session on Friday, EUR/USD bears maintain control as the pair hovers around 1.0720, near its lowest point in two months. The prevailing strength of the US Dollar, coupled with concerns about the Eurozone's economic outlook, reinforces the downward pressure on the Euro pair. Sellers remain optimistic after dominating the market for three consecutive days.

The final reading of Germany's Q1 2023 Gross Domestic Product (GDP) was revised downward to -0.3% quarter-on-quarter, deviating from the previously estimated 0.0%. German Finance Minister Christian Lindner expressed surprise at the negative signals conveyed by the GDP data.

Meanwhile, Bostjan Vasle, a member of the European Central Bank (ECB) Governing Council, emphasized the necessity of further interest rate hikes to bring inflation down to the target level in an interview with Slovenia's Delo newspaper. Conversely, ECB Vice President Luis de Guindos highlighted potential downside inflation risks stemming from banking tensions.

On the other hand, positive US data, combined with concerns about a US default, contributes to the cautious sentiment and supports the recent upswing in the US Dollar and bond yields. Key upcoming releases, such as Durable Goods Orders and the inflation measure, will provide additional support for the US Dollar compared to the Euro.

Speaking of data, the second estimate of Q1 2023 US Annualized Gross Domestic Product (GDP) was revised up to 1.3% from the initial forecast of 1.0%. Additionally, the Chicago Fed National Activity Index for April improved to 0.07, surpassing the previous reading of -0.37 and the market estimate of -0.02. Similarly, the Kansas City Fed Manufacturing Activity for May showed improvement, recording -2 compared to the previous reading of -21 and the estimated -11. It is worth mentioning that US Pending Home Sales for April displayed a year-on-year improvement but a month-on-month decline, while the preliminary readings of Core Personal Consumption Expenditures indicated a rise to 5.0% from the previous 4.9%.

It is important to note that concerns about a potential US default also contribute to the dominance of the US Dollar. US House Speaker Kevin McCarthy recently announced the lack of an agreement on the debt deal, acknowledging ongoing negotiations by stating, "It's hard. But we're working and we're going to continue to work until we get this done."

Against this backdrop, the US Dollar Index (DXY) reached its highest level in 10 weeks, touching 104.20 most recently. Furthermore, the yields of US 10-year and two-year Treasury bonds climbed to levels not seen since early March, approximately 3.82% and 4.54%, respectively. Although Wall Street closed with mixed results, S&P500 Futures show a slight decline at present.

Looking ahead, short-term movements in EUR/USD will be influenced by risk factors. Additionally, the scheduled release of April's US Durable Goods Orders and Core Personal Consumption Expenditure (PCE) Price Index, which is the Federal Reserve's preferred inflation gauge, will be significant determinants.

Diagram of EUR/USD

Economic Events: -

Date Event Impact Currency

2023, June 09, 00:55 (Canada) BoC Beaudry Speech Low CAD

2023, June 09, 07:00 (China) Inflation Rate MoM Medium CNY

2023, June 09, 07:00 (China) PPI YoY Medium CNY

2023, June 09, 07:00 (China) Inflation Rate YoY High CNY

2023, June 09, 09:05 (Japan) 3-Month Bill Auction Low JPY

2023, June 09, 10:00 (Netherlands) Manufacturing Production MoM Low EUR

2023, June 09, 10:30 (Estonia) Balance of Trade Low EUR

2023, June 09, 10:30 (Finland) Industrial Production YoY Low EUR

2023, June 09, 11:30 (Lithuania) Balance of Trade Low EUR

2023, June 09, 11:30 (Lithuania) PPI MoM Low EUR

2023, June 09, 11:30 (Lithuania) PPI YoY Low EUR

2023, June 09, 11:40 (China) Vehicle Sales YoY Low CNY

2023, June 09, 12:30 (Austria) Industrial Production YoY Low EUR

2023, June 09, 12:30 (Slovakia) Industrial Production YoY Low EUR

2023, June 09, 12:30 (Slovakia) Construction Output YoY Low EUR

2023, June 09, 12:30 (Slovakia) Balance of Trade Low EUR

2023, June 09, 13:30 (Italy) Industrial Production YoY Low EUR

2023, June 09, 13:30 (Italy) Industrial Production MoM Medium EUR

2023, June 09, 13:30 (Euro Area) ECB de Guindos Speech High EUR

2023, June 09, 14:00 (Slovenia) Industrial Production YoY Low EUR

2023, June 09, 14:00 (Euro Area) ECB Enria Speech Low EUR

2023, June 09, 14:30 (Greece) Industrial Production YoY Low EUR

2023, June 09, 14:30 (Greece) Harmonised Inflation Rate YoY Low EUR

2023, June 09, 14:30 (Greece) Inflation Rate YoY Low EUR

2023, June 09, 14:30 (Greece) Inflation Rate MoM Low EUR

2023, June 09, 14:30 (Malta) Balance of Trade Low EUR

2023, June 09, 14:30 (Malta) Industrial Production YoY Low EUR

2023, June 09, 14:40 (Italy) 12-Month BOT Auction Low EUR

2023, June 09, 15:00 (Cyprus) Balance of Trade Low EUR

2023, June 09, 15:30 (Spain) Consumer Confidence Medium EUR

2023, June 09, 15:30 (Belgium) Industrial Production YoY Low EUR

2023, June 09, 15:30 (Belgium) Industrial Production MoM Low EUR

2023, June 09, 15:30 (Latvia) Balance of Trade Low EUR

2023, June 09, 15:30 (Portugal) Balance of Trade Low EUR

2023, June 09, 18:00 (Canada) Capacity Utilization Low CAD

2023, June 09, 18:00 (Canada) Part Time Employment Chg Medium CAD

2023, June 09, 18:00 (Canada) Full Time Employment Chg Medium CAD

2023, June 09, 18:00 (Canada) Participation Rate Medium CAD

2023, June 09, 18:00 (Canada) Unemployment Rate High CAD

2023, June 09, 18:00 (Canada) Employment Change High CAD

2023, June 09, 18:00 (Canada) Average Hourly Wages YoY Low CAD

2023, June 09, 19:30 (El Salvador) Inflation Rate YoY Low USD

2023, June 09, 19:30 (El Salvador) Inflation Rate MoM Low USD

2023, June 09, 20:30 (Kosovo) Inflation Rate YoY Low EUR

2023, June 09, 21:30 (United States) WASDE Report Low USD

2023, June 09, 22:30 (United States) Baker Hughes Oil Rig Count Low USD

2023, June 09, 22:30 (United States) Baker Hughes Total Rig Count Low USD

Buy Scenario: -

EUR/USD recovered slightly during early Friday morning in Europe, consolidating its losses for the week. The major currency pair is currently trading near 1.0735, marking its first daily gains in four days and finding support from a rising trend line that has been in place for the past six months.

The oversold condition of the Relative Strength Index (RSI) (14) provides some strength to the corrective bounce in EUR/USD. However, the bearish signals from the Moving Average Convergence Divergence (MACD) and a downward-sloping resistance line from early May, which is currently around 1.0765, pose challenges for buyers of the Euro pair.

Even if the buyers manage to surpass the 1.0765 barrier, the 100-day Exponential Moving Average (EMA) at approximately 1.0780 could act as the final defense for the bearish sentiment before potentially targeting the mid-month high around 1.0900.

It is important to note that unless the EUR/USD crosses the psychological level of 1.1000, the overall outlook remains bearish, till we do not advise to buy EUR/USD currency pair.

Sell Scenario: -

On the downside, the aforementioned support trend line and the 200-day EMA near 1.0710 and 1.0685 respectively, limit the short-term downside potential for EUR/USD.

However, it cannot be ruled out that the pair may experience a decline towards the yearly low reached in March around 1.0515.

In summary, despite the recent corrective bounce, EUR/USD remains primarily in bearish territory. Till then we do not advise selling EUR/USD.